South African markets embark on a fragmentation journey

Dr Elliot Banks, Chief Product Officer, BMLL

It was great to travel to Johannesburg last month where I spoke on an equity market structure panel at the Johannesburg Stock Exchange (JSE) South Africa (SA) Trade Connect 2023 event, featuring conference panellists from across the buy and sell-side.

The key theme that really stood out is that the South African market is within the early stages of its fragmentation journey. While the market is still primarily driven through the JSE, there are other smaller exchanges there that are trading as well.

As a result, we can see that there is a real desire to learn about what is going on in different markets - for example, some of the positive (and less positive) effects that regulation and fragmentation have had in European and global settings. On our panel specifically we spoke in great detail about closing auctions and how granular data is essential in helping institutional investors navigate the close. An in-depth understanding of the close can help drive the liquidity and market structure conversations going forward across the South African market.

What is clear, is that the conversation becomes a lot easier by having consistent data across Europe, the US and South Africa. Having granular, consistent data makes it easier to look back at what has happened over a longer time horizon, understand how the markets have behaved, and use that insight to drive informed decision-making going forward. We can see this in more detail if we examine the trend of the closing auction, which accounts for an increasing portion of the daily trading volumes in South Africa. Learning more about the price discovery process in this period is essential for traders to discover when price formation actually kicks in and knowing which is the best price, whether for best execution or for alpha.

By having access to the type of data that BMLL provides, the panel was able to conduct in-depth discussions and use it to shed light on South African market behaviour.

BMLL provides the Johannesburg Stock Exchange, Africa’s largest stock exchange, with analytics capabilities to carry out cross-venue market analysis of influences on liquidity dynamics and market share across different trading sessions and securities on the exchange. To find out more about how BMLL can provide you with a deeper understanding of venue, liquidity or execution quality and unlock new trading opportunities, contact us.